The case for kicking all the countries out of the BRICS

In a little over a decade, BRICS has gone from a Wall Street buzzword to a formal international alliance, which is currently holding its fifth summit in Durban, South Africa. The acronym grouping of emerging economies Brazil, Russia, India, and China was first coined by Goldman Sachs analyst Jim O'Neill in 2001. In 2010, the S became uppercase as South Africa was invited to join the club. But as enthusiastically as the governments involved have embraced the BRICS concept, it has also spawned a cottage industry of pundits questioning whether one or more members of the club are up to snuff. 

On Foreign Policy today, Cape Town-based writer Roy Robins argues that South Africa never belonged in the alliance in the first place, and that its inclusion is underminind the country's democratic legacy.

Surely a more robust and exciting economy -- Turkey, Mexico, or South Korea -- would be a better fit?

Are the political realities of being a BRIC now undermining South Africa's rainbow legacy? Last July, South Africa initially abstained from a vote sanctioning U.N. action against Bashar al-Assad's government in Syria -- a vote which Russia and China double-vetoed three times. (Bizarrely, Assad has now asked "for intervention by the BRICS to stop the violence in his country and encourage the opening of a dialogue." Human Rights Watch is now advocating a strong BRICS denunciation of the Syrian dictator.) In fact, it's not uncommon for BRICS nations to have questionable U.N. voting records and illiberal policies at home. As Morgan Stanley Emerging Markets analyst Ruchir Sharma, one of the most astute critics of BRICS, notes : "Of the 124 emerging-market countries that have managed to sustain a five percent growth rate for a full decade since 1980, 52 percent were democracies and 48 percent were authoritarian. At least over the short to medium term, what matters is not the type of political system a country has but rather the presence of leaders who understand and can implement the reforms required for growth."

Some see South Africa's U.N. voting record as evidence of a country moving away from its post-apartheid ideals (a champion of equality and liberal decency) to, in the words of the Economist, "becom[ing] more like most other countries around the world -- putting their own interests before principle." Today's South Africa is a country that has fully transitioned from hopeful adolescence to pragmatic and troubled adulthood. South Africa's membership in the BRICS club is primarily about self-interest, and, despite grandiloquent press releases, it has little to do with principle.

O'Neill himself was baffled by South Africa's invitation to join the club in 2010, but the BRIC he's most concerned about is India:

"All four countries have become bigger (economies) than I said they were going to be, even Russia. However there are important structural issues about all four and as we go into the 10-year anniversary, in some ways India is the most disappointing," said O'Neill who oversees almost a trillion dollars in assets at Goldman.

"India has the risk of ... if they're not careful, a balance of payments crisis. They shouldn't raise people's hopes of FDI and then in a week say, 'we're only joking'," O'Neill said. "India's inability to raise its share of global FDI is very disappointing," he said.

[...]

The glacial reform pace has hit India's hopes for double-digit economic growth, O'Neill said, adding: "India is as bad as Russia is on governance and corruption and, in terms of use of technology, Russia is in fact much higher than India."

From the beginning, there were doubts about Russia's inclusion. While the other BRICS have risen to increased geopolitical prominence since the 1990s, Russia is still struggling to regain the global relevance it enjoyed as the Soviet Union. In 2009, Anders Aslund wrote an article for this site titled, "Take the R Out of BRIC":

Does Russia really deserve to be a BRIC? The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort. [...]

If Russia is indeed falling out of BRIC, it is because that country's crisis is not financial but systemic. Russia is suffocating from the dominance of corrupt state corporations and red tape -- and oil isn't going to save it this time. The government bailed out the worst-hit state corporations and banks from financial crisis with its reserves last year, the third-largest such stock in the world. The current growth crisis followed; this massive misallocation of capital to state crony companies has depressed economic dynamism.

Not so fast, wrote Forbes' Mark Adomanis last year. The weakest BRIC in the wall isn't Russia, it's Brazil:

Since economic modernization is supposedly linked with democratization and is supposedly prevented by authoritarianism, we should expect to see that Brazil is developing more quickly than Russia, or, at the very least, is  developing at the same rate.  What has actually happened? After an extremely impressive performance in 2010, Brazil’s economy has performed abysmally and is on track to grow at a mere 1.6% in 2012 even after significant government efforts at stimulus. Russia, after getting hammered during 2009, has had a sustained if not overly rapid recovery, and is on track to record  2012 GDP growth of around 3.5%.[...]

If Russia’s economy is decaying, sclerotic, primitive, and fragile, what the heck does that make Brazil’s? What sorts of adjectives would we need to use to adequately describe it? “Rotten?” “Paralyzed?” “Stone-aged?” “Shattered?” I know that Brazil still has a large number of serious economic problems, and, even in the most optimistic of analyses, is desperately in need of certain structural reforms. But I don’t think it’s remotely fair to paint Brazil as some sort of uniquely horrible country or to suggest it faces an imminent existential crisis. But if Russia is actually on the verge of economic apocalypse, why isn’t Brazil (which is much poorer on a per capita basis and is growing more slowly) similarly vulnerable?

Generally speaking, China is assumed to be the senior partner in the BRICS alliance, which the debate mostly focusing on which countries should come before the C. But George Mason University's Jack Goldstone says China doesn't have the demographics to keep up with its more dynamic cohorts:

In response to the success of the one-child policy adopted in 1978, China's labor-force growth ceased in 2010, and its working-age population will decline by 15 percent by 2040. This shift from 1.7 percent annual labor-force growth to an annual contraction of 0.5 percent will, by itself, knock 2.2 percentage points off China's annual economic growth potential over the next three decades. Moreover, urbanization -- perhaps the main driver of productivity increases -- will decline even more. The U.N. Population Division projects that China's urbanization will continue, rising from 45 percent of China's population today to 67 percent by 2040 as an additional 360 million people will be added to China's cities. As an annual rate of urban growth, though, this is only a 1.5 percent annual increase -- a slowdown of about two-thirds from the 1980-2010 rate.

As for educational growth, that too has clearly reached a limit. Twenty percent of China's college-age youth are in colleges and universities today, a remarkable number for what is still a predominantly agrarian and blue-collar economy. China announced this year that it will limit the growth of doctoral programs. The biggest concern of Chinese college graduates is that their numbers have increased much faster than the economy can employ them, as white-collar jobs are proving extremely hard to find. Thus, all the demographic drivers of China's recent productivity increase will be lacking in the future.

With demographic trends no longer so favorable to growth, China's productivity gains will have to come primarily from increasing capital per worker and technological innovation. China's leaders understand this all too well, but the prognosis is not good. A recent report by IBM on international use of the latest business technologies cited China as 83rd out of 134 countries -- India was 43rd and Brazil 58th. Authoritarian countries have never been flourishing centers for innovation; new ideas come from freethinkers who question authorities and existing ways of doing things -- hardly a welcome sight in China.

Goldstone doesn't have much good to say about Russia or South Africa either, arguing that TIMBIS -- Turkey, India, Mexico, Brazil, Indonesia, South Korea -- would be a more useful grouping. 

When it comes down to it, the BRICS are a pretty disparate group in terms of culture, geography, economy, and political regime. It's possible to make the case that any of them don't really fit. Then again, it's not as if the G-8 or the U.N. Security Council are exactly representative of the real state of global power either. BRICS is seen by its members as a politically advantageous designation and will probably continue through force of intertia, despite what all the haters say.

 


 

 

ALEXANDER JOE/AFP/Getty Images

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